ACC 241 Exam 1 Questions and
Answers (Already Graded A)
What is accounting? - ANSWER - Accounting consists of three basic activities- it
identifies, records, and communicates the economic events of an organization to
interested users.
Identifies - ANSWER - the economic events relevant to its business
Records - ANSWER - consists of keeping a systematic, chronological diary of events,
measured in dollars and cents
Communicates - ANSWER - the collected information to interested users by means
of accounting reports
Financial Statements - ANSWER - Four Parts:
1. An income statement presents the revenues and expenses and resulting net
income or net loss for a specific period of time.
2. An owner's equity statement summarizes the changes in owner's equity for a
specific period of time.
3. A balance sheet reports the assets, liabilities, and owner's equity at a specific
date.
4. A statement of cash flows summarizes information about the cash inflows
(receipts) and outflows (payments) for a specific period of time.
What is a vital element in communicating economic events? - ANSWER - the
accountant's ability to analyze and interpret the reported information
Analysis - ANSWER - involves use of ratios, percentages, graphs, and charts to
highlight significant financial trends and relationships
Interpretation - ANSWER - involves explaining the uses, meaning, and limitations of
reported data
,Financial Accounting Standards Board (FASB) - ANSWER - the primary accounting
standard-setting body in the United States
Securities and Exchange Commision (SEC) - ANSWER - the agency of the U.S.
government that oversees U.S. financial markets and accounting standard-setting
bodies
International Accounting Standards Board (IASB) - ANSWER - Many countries outside
of the United States have adopted the accounting standards issued
Summary of the Accounting Process - ANSWER - Identification (select economic
events -transactions)
Recording (record, classify, and summarize)
Communication (prepare accounting reports)
Analyze and interpret for users
Bookkeeping - ANSWER - involves only the recording of economic events
Who uses accounting data? - ANSWER - There are two broad groups of users of
financial information: internal users and external users.
Internal users - ANSWER - managers who plan, organize, and run the business
-include marketing managers, production supervisors, finance directors, and
company officers
-managerial accounting
Managerial accounting - ANSWER - provides internal reports to help users make
decisions about their companies
External Users - ANSWER - individuals and organization outside a company who
want financial information about the company
, What are the two most common types of external users? - ANSWER - Investors and
Creditors
Investors - ANSWER - (owners) use accounting information to make decisions to
buy, hold, or sell ownership shares of a company
Creditors - ANSWER - (suppliers and bankers) use accounting information to
evaluate the risks of granting credit or lending money
Financial accounting - ANSWER - provides economic and financial information for
investors, creditors, and other external users
Taxing authorities - ANSWER - want to know whether the company complies with tax
laws
Regulatory agencies - ANSWER - want to know whether the company is operating
within prescribed rules
Customers - ANSWER - interested in whether a company will continue to honor
product warranties and support its product lines
Labor unions - ANSWER - want to know whether the owners have the ability to pay
increased wages and benefits
The Building Blocks of Accounting - ANSWER -
Ethics - ANSWER - standards of conduct by which one's actions are judged as right
or wrong, honest or dishonest, fair or not fair
Generally Accepted Accounting Principles (GAAP) - ANSWER - standards that are
generally accepted and universally practiced
-indicate how to report economic events
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